Aussie At 5-Month High Against the Pound

Down with the pound! The Australian dollar claimed two and a half cents from UK sterling in the last week, rising to 0.6572, its highest point since August 23rd last year. What's to account for this? Well, it's a combination of upbeat global sentiment lifting the Aussie, and fears of a triple-dip recession in the UK dragging down the pound. Looking ahead, if official data released next Friday reveals the UK contracted in the last three months of 2012, we can expect this Aussie strength to extend.

Latest Changes in the Aussie

Here's a look at how the Australian dollar changed value against the three biggest global currencies last week.

Currency Pair

Rate 10.01.2013

Rate 17.01.2013

Percentage Change

Pound to Aussie

1.5574

1.5227

-2.228%

Euro to Aussie

1.2649

1.257

-0.625%

US dollar to Aussie

0.9621

0.9517

-1.081%

What Affected the Aussie this Week

Fears a UK triple-dip recession is on the way

The UK really hasn't gotten off to the best start to 2013. While the talk in neighbouring Europe is of economic recovery, Britain looks increasingly set to enter its third recession since the financial crash. This is really because of the country's weak economic fundamentals. Its services sector, for instance, accounting for 76.2% of everything the country produces, flat-lined between October and December. Meanwhile, a looked-for boom in exports has yet to emerge. Given that, fears of the triple dip are dragging down the pound against the Aussie.

Hopes for global growth lift the Aussie

In addition, the Australian dollar benefited from its status as a "risk currency" this week (meaning it gains when the global mood brightens.) This is chiefly because of talk of economic recovery in Europe. Following its disastrous 2012, the Eurozone has gotten off to a fresh start this year, with several senior figures saying the worst of the debt crisis is behind us. Just yesterday for instance, European Central Bank council member Ewald Nowotny told journalists "I am quite sure that the panic situation, if there ever had been one, is over."

What's Going to Happen Next?

If I had to choose, I'm not sure I'd put my money on a rising Australian dollar next week or not. On the one hand, all the things that lifted the Aussie this past fortnight look set to stay in place. The UK will continue to face down a third recession, while the crisis in the Eurozone should go on receding. Yet, acting against that, news out of Australia and China (Australia's biggest trade partner) this week and next could disappoint, taking the wind out of the Aussie's sails, if not sending it down entirely. Let's take a closer look at what's coming up.

Australia's job market could continue to weaken

Australia looks set to become a harder place to find work in 2013, as its mining boom peters out. In December for instance, unemployment rose +0.1% to 5.4%, with the total number of jobs available falling five thousand. This highlights the fact that, mining investment aside, the rest of the Australian economy has really been going sideways since 2008. As that becomes more obvious this year, joblessness could continue to rise, and the Aussie dollar fall, as the sheen comes off Australia's success story.

China set to expand at a more modest pace

Furthermore, the Aussie dollar could also face pressure next week, as economic growth in China, Australia's biggest trade partner, continues to moderate. China is forecast to expand 7.8% in 2012, which, in anybody's book but the Chinese, would be astonishing. Yet, by China's standards, 7.8% is pretty slow, and this would in fact be the country's worst performance since 2004. Given that, even if China hits that 7.8% target, investors might cool to the country's future prospects, affecting both Australia (given its closeness to China) and the value of the Aussie.

What to Look Out For

Here are the biggest economic releases set to affect the Australian dollar in the next week.

Time of Release

Economic Release

Friday 18th 2.00 GMT

China GDP (Q4)

Friday 18th 2.00 GMT

China Industrial Production (December)

Friday 18th 2.00 GMT

China Retail Sales (December)

Friday 18th 9.30 GMT

UK Retail Sales (December)

Tuesday 22nd 9.30 GMT

UK Public Borrowing (December)

Wednesday 23rd 9.30 GMT

UK Unemployment Rate (November)

Thursday 24th 1.45 GMT

China HSBC Manufacturing PMI (January)

Friday 25th 09.30 GMT

UK GDP (Q4)

In short then, the Australian dollar has enjoyed a good week, yet the odds of it continuing to gain are finely balanced. Until the next week!